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WITHIN THE SYSTEM My Half Century in Social Security Memorial Edition Robert J. Myers with Richard L. Vernaci A portion of the proceeds from this edition will be donated in Bob’s memory to The Actuarial Foundation. Copyright © 1992, 2010 by ACTEX Publications, Inc. Cover photo © SSA History Archives All rights reserved. No portion of this book may be reproduced in any form or by any means without the prior written permission of the copyright owner. Cover Design by Christine Phelps ISBN: 978-1-62542-914-8 INTRODUCTION I know what title I would give to this wonderful book. To wit and namely, The Autobiography of a National Treasure. But precisely because Robert J. Myers, henceforth Bob, is a national treasure, the thought would never occur to him. His purpose is simply to convey important information, as far as possible in statistical, which is to say, verifiable terms. Hence, Within the System: My Half Century in Social Security. He does so with the easy, unassuming clarity with which he helped shape and then guide the single most important domestic program of the Federal government from its beginnings far back in the century to this very moment. To this moment, that is, when the chairman of the Subcommittee on Social Security and Family Policy of the Senate Committee on Finance finds himself sitting at a typewriter with the Capitol dome over his right shoulder, bright with late summer sunlight, asking, “Let’s see now. Is Bob to lead off the next hearing on the ‘notch?’ Let us hope. He is the only one who will tell us the truth. Before the election, at all events.” The “notch?” These are persons born in the years 1917-1921. When they reached age 65 they found they were receiving somewhat lower Social Security retirement benefits than those in the cohort immediately preceding them. This seems an injustice and a national movement has been organized to redress it. Just Thursday an effort to do so in the Senate failed on a tie vote 49-49. The fact of the matter is that owing to an error in the Social Security Amendments of 1972, those born in the years immediately preceding the “notch babies,” as they are known, and who worked well beyond age 62 are receiving higher than intended benefits. This was corrected in the Social Security Amendments of 1977 for those born after iv WITHIN THE SYSTEM: MY HALF CENTURY IN SOCIAL SECURITY 1916, but in a manner that makes many perceive an injustice. As Bob Myers explains in Chapter One, it is nothing of the sort. It is merely that the “bonanza babies” make it seem such. On Thursday we agreed to a Presidential Commission, and perhaps it will come to that. Yet another complicated Social Security issue. And here is the autobiography of a man who was literally present at the creation. In the summer of 1934, at the very bottom of the Great Depression, what for many seemed the death agony of capitalism, Franklin D. Roosevelt established a Committee on Economic Security, headed by his Secretary of Labor, the incomparable Frances Perkins, to work out a system of social insurance that would provide, among other things, retirement benefits far into a future that, as I have said, many doubted would come to pass. It was the Roosevelt touch. Amazing how the future takes care of itself when folks have a stake in it. The work of the committee was directed by a gentle giant of an intellect, Professor Edwin Witte of the University of Wisconsin. Robert J. Myers, age 21, signed on as an actuary. In a matter of months, at a cost of $145,000, the group created what is now the largest insurance system on Earth. They did so with astounding accuracy, given the data and data processing resources of the time. Thus, they projected that in the year 1990 some 12.65 percent of the population would be at least 65 years old. The time came round, as time will do. Answer: 12.49 percent. And they did some things as some things have to be done, which is to say, without rhyme or reason. What should the retirement age be? In Imperial Germany of the 1880s, Bismarck’s social security program put the retirement age at 70. Dr. Francis E. Townsend of California, with his millions of followers in 1934, put the age at 60. Split the difference: call it 65. The legislation was enacted in 1935; Bob Myers joined the system, rising steadily to the all-important position of Chief Actuary. For all the skill and care that had gone into the legislation, somehow Social Security never found a secure place in American politics. The contrast with the British experience, and of course, the Canadian, is instructive. Social insurance in Britain has been largely the work of members of the Liberal Party, which is to say, persons associated with, and approving of, business and entrepreneurial enterprise generally. INTRODUCTION v Unemployment insurance, which came to the United States in the Social Security Act of 1935, was passed through the British Parliament in 1911 under the auspices of Winston S. Churchill, then a member of a Liberal government. Similarly, the “cradle-to-the-grave” proposals of the Beveridge Commission of 1942 were the work of a Liberal statesman, Sir William Beveridge. Not so in the United States. From the outset, elements of the Republican party were either in opposition or suspicious. Bob Myers, a lifelong unashamed Republican (as all actuaries ought to be!), puts the matter plainly enough. Republicans have always been tarred with the brush of being enemies of Social Security. The system has had its enemies, and they have tended to be Republicans, but that doesn’t mean all Republicans – or even most of them – want to destroy Social Security, to hack it out by its roots. As, indeed, they do not. A Democrat, I have served in two Republican cabinets, and absolutely so affirm. On the other hand... well, let Bob Myers tell the tale. Chapter One. “Heading for Disaster.” The system had gotten itself into actuarial trouble, and a new administration saw this as an opportunity to start dismantling the whole enterprise. This crisis gave the Reaganites an excuse to slice into the belly of Franklin D. Roosevelt’s most enduring legacy and tinker with its guts. Social Security was flat on its back and, God help it, the system was at the mercy of people who didn’t like it or understand it. Reagan himself in 1964 had gone around the country calling for making the system voluntary. That would destroy it because the low-cost people would opt out, leaving only the high-cost ones in. And now, his budget director, David Stockman, an owlish, arrogant former congressman from southern Michigan, was ready to wield the knife for him. It was to be the President’s first colossal defeat, and according to Stockman himself, it would help stop the Reagan revolution “dead in its tracks.” “This was truly the triumph of politics,” Stockman would later complain in his book bearing that as its title. This defeat was indeed the triumph of politics. The system did work. vi WITHIN THE SYSTEM: MY HALF CENTURY IN SOCIAL SECURITY The system was running out of money to pay benefits. The Administration sent a message to Congress proposing to deal with this by fierce cuts in benefits for the lowest income recipients. Cutting expenditures is nothing new to government. If anything, it doesn’t happen often enough. But cutting insurance benefits, benefits stipulated in a contributory pension plan, is a very different thing. The Administration proposal was sent to Congress in May of 1981. On the morning of May 20th, I went to the floor of the Senate and offered a somewhat fiercely-worded resolution declaring this would never be allowed. I lost by one vote in the new Senate with a new Republican majority. Whereupon Senator Bob Dole, the chairman of the Finance Committee, which is responsible for Social Security, offered substantially the same measure with the language toned down. I was a co-sponsor. The measure passed 96-0. The crisis wasn’t over, but the basis for resolving it had suddenly revealed itself. A third of a century after it was founded, Social Security was becoming a bipartisan program, which both parties would protect. That this took so long, and that the process is still not completed is as much the fault of liberal Democrats as of conservative Republicans, although for reasons that would (and do) puzzle those involved. As Bob Myers points out, from the very first the “vast, new bureaucracy would be colonized by likeminded people, including men like Wilbur Cohen and Robert M. Ball.” These were wonderful people. I counted the late Wilbur Cohen, later Secretary of Health, Education, and Welfare, as the closest of friends; we served in both the Kennedy and Johnson Administration. Bob Ball is as wise a counselor as any Senator will ever know; a man of principle, strength, and at the same time, admirable flexibility. They, too, made their mark on American social history. They had, as Bob Myers writes, “from the beginning ... a largely unwritten, but deeply ingrained ... plan that the program would be expanded, that it would evolve as time and circumstance and money would allow.” The only problem with this “plan” was that it was an insider’s affair. It had a base in the labor movement, but even there it was the labor movement of the 16th Street headquarters of the AFL-CIO, across the park from the White House, more than the labor movement of the hiring INTRODUCTION vii halls.